• ST-1.4 ST-1.4 Policies, Procedures and Documentation

    • ST-1.4.1

      Conventional bank licensees must establish comprehensive policies and procedures governing its stress testing programme which address the following:

      (a) Principal objectives of the stress testing programme;
      (b) Governance including the roles and responsibilities of the Board, senior management, relevant business heads, Risk Management, Operations, Financial Control, Treasury, Compliance and Internal Audit;
      (c) Articulate the risk drivers (external and internal) in testing scenarios;
      (d) Pre-defined frequency for periodic stress testing. In case of ad hoc stress testing, establish criteria or trigger points.
      (e) Methodologies used for stress testing of each risk category and development of relevant scenarios;
      (f) Range of triggers and remedial management actions envisaged vis-à-vis different adverse events;
      (g) Frequency of review and update of the stress testing programme to reflect changing market conditions;
      (h) Reporting procedures; and
      (i) Guidelines on use of stress testing for broader risk management.
      July 2018

    • ST-1.4.2

      Where a third-party model is used in stress testing, conventional bank licensees must demonstrate a thorough understanding of:

      (a) Methodology underpinning the external model;
      (b) The third party's approach to validating the model;
      (c) Approach to implementing the model;
      (d) Rationale behind any adjustments made to the external model's input data sets and output; and
      (e) Limitations of the external model.
      July 2018